Chapter 7 - Using Consumer Loans
Chapter 7 – Using Consumer Loans
COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
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Chapter 7 - Learning Goals
Learning
Goals
LG 1 - Know when to use consumer loans and be able to differentiate between the major types.
LG 2 - Identify the various sources of consumer loans.
LG 3 - Choose the best loans by comparing finance charges, maturity, collateral, and other loan terms.
LG 4 - Evaluate the benefits of a demand loan.
LG 5 - Evaluate the benefits of an installment loan.
LG 6 - Determine the costs of installment loans and analyze whether it is better to pay cash or take out a loan.
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Chapter 7 – Using Consumer Loans
Internet Links and On-Line Resources
• Auto Loans: Negotiations Salted with Landmines – Bankrate.com
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Advice on financing a university education at CanLearn Web site .
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Products and services offered to consumers from HSBC Finance
Corporation Canada .
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Information on payday loans in Canada.
• Compare the cost of different financing options at Government of
Canada Industry Canada website – strategis .
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Lending Tree lets you compare loan rates and fees from up to four lenders instantly.
Web Links
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Chapter 7 – Using Consumer Loans
Terms
Key Chapter Terms and Definitions
Cash value (of life insurance)
Credit life (or disability) insurance
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Chapter 7 – Using Consumer Loans
Definitions
Consumer loans
Loans made for specific purposes using formally negotiated contracts that specify the borrowing terms and repayment.
Terms
Chapter 7 – Using Consumer Loans
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Definitions
Collateral
An item of value used to secure the principal portion of a loan.
Terms
Chapter 7 – Using Consumer Loans
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Definitions
Registered Education Savings Plan (RESP)
A government-sponsored investment vehicle that allows earnings to grow tax free as long as they are used to meet university education expenses.
Terms
Chapter 7 – Using Consumer Loans
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Definitions
Demand loan
A loan made for a specified period of time, which the bank can require to be repaid at any time.
Terms
Chapter 7 – Using Consumer Loans
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Terms
Definitions
Interim financing
The use of a demand loan to finance a purchase or pay bills in situations where they funds to be used for repayment are known to be forthcoming in the near future.
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Chapter 7 – Using Consumer Loans
Definitions
Installment loan
A loan that is repaid in a series of fixed, scheduled payments rather than a lump sum.
Terms
Chapter 7 – Using Consumer Loans
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Definitions
Consumer finance company
A firm that makes secured and unsecured personal loans to qualified individuals; also called a
small loan company.
Terms
Chapter 7 – Using Consumer Loans
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Definitions
Sales finance company
A firm that purchases notes drawn up by sellers of certain types of merchandise; typically big-ticket items.
Terms
Chapter 7 – Using Consumer Loans
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Terms
Definitions
Captive finance company
A sales finance company that is owned by a manufacturer of big-ticket merchandise.
For example, GMAC is a captive finance company owned by General Motors.
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Chapter 7 – Using Consumer Loans
Definitions
Cash value (of life insurance)
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An accumulation of savings in an insurance policy that can be used as a source of loan collateral.
Terms
Chapter 7 – Using Consumer Loans
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Definitions
Loan application
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An application that provides a lender with information about the purpose of the loan, and the applicant’s financial condition.
Terms
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Definitions
Security interest
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A legal claim that permits the lender, in event the borrower defaults, to liquidate the items serving as collateral to satisfy the obligation.
Terms
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Definitions
Chattel mortgage
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A mortgage on personal property given as security for the payment of an obligation.
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Definitions
Prepayment penalty
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An additional charge you may owe if you decide to pay off your loan prior to maturity.
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Definitions
Loan rollover
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The process of paying off a loan by taking out another loan.
Terms
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Definitions
Add-on method
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A method of calculating interest by computing finance charges on the original loan balance and then adding the interest to that balance.
Terms
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Definitions
Credit life (or disability) insurance
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A type of life (or disability) insurance in which the coverage decreases at the same rate as the loan balance.
Terms
Chapter 7 – Using Consumer Loans
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THE END!
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